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The sharp fall in the gold price has spooked investors. Shares in mining groups have tumbled and questions have been raised about whether gold firms are past their sell-by date.
Archipelago Resources has not been immune to these concerns. It produces gold in Indonesia and its stock has fallen 19 per cent in the past month from 60p to 481⁄2p. But at this level, the shares are cheap.
Unlike most gold companies trading on AIM, Archipelago is already in production. It is one of the lowest-cost producers on the London market and it is about to start paying a dividend.

FORTUNES: Boss Marcus Engelbrecht and Sulawesi island
Archipelago joined AIM in 2003 just after securing the rights to a large mine, Toka Tindung, on the Indonesian island of Sulawesi. Early days were tricky as the firm struggled to get mining permits, but Rajawali Corporation took a major stake in 2009 and the company’s fortunes changed.
Rajawali is an Indonesian conglomerate run by one of the country’s richest men, Peter Sondakh. Not surprisingly, he and his colleagues are well connected, and following their investment, doors opened and the firm won permission to start mining.

Production began in April 2011. Four months later a new chief executive, Marcus Engelbrecht, was appointed and the company has been making good progress ever since.
Engelbrecht, an Australian, has a wealth of experience, including more than 20 years at mining giant BHP Billiton. The rest of the management are old mining hands too and are respected among City brokers, not least because they have so far delivered exactly what they said they would.
In January 2012, for example, Engelbrecht said production for the year would be between 135,000 and 145,000 ounces of gold. Ultimately, the firm produced 139,000 ounces. This year, production is forecast at between 140,000 and 155,000 ounces.
The group is still assessing the potential of Toka Tindung and signs are encouraging. An upbeat resource update was released on Friday and Engelbrecht hopes to be producing 200,000 ounces a year by 2015.
The firm is fortunate, too, because all-in costs, including production, capital expenditure, exploration and administration, are about $900 (£588) per ounce, while the average for London-listed groups is about $1,300.
This means the firm is less vulnerable to short-term gold price swings and has enough cash to pay a dividend. Last month, it unveiled a maiden payout of 1.25p a share for 2012 plus a 1p special dividend. A progressive dividend policy is expected from now on.
Midas verdict: The gold price has bounced from a closing low of $1,380 on April 16 to $1,471.5 today. While pundits debate its prospects, Archipelago reports robust demand for its gold and is confident about the future. Even if the gold price slips, this firm’s low costs provide a comfortable cushion. If it rises, Archipelago’s shares should rise too. Investors will also benefit from growing production. Buy.